Is Barnes & Noble the New Borders?

Is Barnes & Noble the New Borders?

Barnes & Noble isn't getting any closer to a storybook ending.

CEO William Lynch is resigning from the struggling book retailer, and more changes may be afoot as the chain continues to review its strategic alternatives.

Lynch was the head of the company's online retailing division when he was promoted in 2010. At the time it seemed to indicate an emphasis on the chain's digital initiatives. Barnes & Noble had decided to compete against a year earlier by introducing the Nook, and was positioning itself to be a bigger force in media retail.

However, it isn't easy running a bookstore where prices need to stay high to cover the overhead of manning a physical store and running a website that's competitive with Amazon's cutthroat pricing. It's hard to fight both battles, because a Barnes & Noble shopper is -- by definition -- well read. Prices need to be consistent across both platforms, or buyers are going to know about it.

Nook could've been a game changer, and it seemed to have a shot initially as the retailer tied e-reader promotions to in-store visits. Unfortunately, Barnes & Noble was competing against Amazon's Kindle. The leading online retailer was brazen in its e-tail pricing, but it was even more aggressive when it came to its thriving e-reader business. Amazon was willing to sacrifice margins on the hardware, banking on making it back in its ecosystem.

Barnes & Noble didn't have much of a choice. It was forced into running its Nook business at a loss, but in a surprising show of validation last year, Microsoft agreed to shell out $300 million for a 17.6% stake in the company's Nook and campus bookstore business.

The liquidation of rival Borders in 2011 also seemed like a good way to drum up sales at neighboring Barnes & Noble stores, but that uptick was short-lived. Borders going away wasn't an opportunity as much as it was a textbook case of foreshadowing.

The story doesn't get any better. Despite persistent rumors of Microsoft acquiring the online operations and the retailer's founder actually making a play for the superstore assets, nothing seems to work out right for Barnes & Noble.

Regardless of Microsoft's role as a prominent investor, Barnes & Noble suspended support for the Mac and PC versions of the Nook stand-alone e-reader software a month ago. Just two weeks ago it pulled the plug on its Nook Color tablet business.

Clearly Barnes & Noble is a company in retreat, and it may want to hurry up in sorting through its strategic alternatives while there is still a choice to be made.

Barnes & Noble is in better financial shape than Borders was when it fumbled its options away, but time is running out for a happy ending.

Amazon doesn't take it easy when it comes to traditional retailers
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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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